Donald Trump’s presidential victory highlights a repeatedly overlooked social phenomenon occurring across Europe, in the UK, and the US. Much like the Brexit event, polls were wildly off and most analysts failed to accurately capture a frustrated working-class expressing anger toward their respective political and business establishment. Fortunately for markets, investors are less reactionary and major indexes seemed to roll with the punches. It appears the market has a grounded perspective on the election upset, showing that panic is unwarranted as the foundation of our global economy remains unchanged.
Although this victory signals a watershed moment in domestic US socio-economic relations, the psychological effect should be met with reserved pragmatism. An objective perspective, paired with a healthy skepticism of Trump’s penchant for bluster, shows markets on their way to a solid recuperation.
We saw initial panic represented in futures trading overnight. S&P futures halted at a 5% drop and the Nasdaq-100 futures dropped about 100 points. Today, markets shifted to controlled uncertainty. The S&P 500 is currently trading at $2160.41- a clean jump of 1%. Many analysts agree that indexes will recover and volatility will be mitigated.
The US dollar is recovering against recent losses, and the ICE U.S. Dollar index increased 0.5% to 98.35. Trump’s dramatic and polarizing proposal for a wall between the US and Mexico, along with a redrawing of trade agreements, is driving the Peso to record lows. The US dollar is currently buying 19.79 Mexican pesos, which is down from a near-21 high overnight.
Within the past week, most analysts expected a December interest rate hike from the Fed, but the degree of uncertainty now introduced is likely to have an effect on that decision. It is now looking more likely that interest rates will stagnate until a round of clear policy statements are delivered from the president-elect.
Gold is selling off after an overnight jump of $43. The temporary safe-haven is currently trading at 1283.60, down from a midnight high of 1337.50. Using SPDR GOLD TRUST (GLD) as a tracker in our Stock Forecast Tool, we see an intraday downward vector followed by gains in the next 10 days. It is currently trading at 122.2 with a 121.64 Low and a 123.68 High. The standard deviation today is 0.41. Our models show 10-day resistance capping above 126 and support resting between 121 and 124.
The CBOE Volatility Index (VIX) saw premarket numbers climbing above 20, but has since receded 18.78% to 15.22. Although this index is particularly sensitive now, our 10-day prediction shows overall decline. Resistance is generally staying around 18, and support ranging from 13 to 15.
Crude oil saw a late Tuesday plunge to a low of $43.30 in a knee-jerk reaction. Keeping with today’s theme, the stock jumped back up today and is currently trading at $45.65. This may be an effort to restore stability, but prices are likely to skid in the near future.
Looking at USO, a crude oil tracker, our 10-day prediction model still shows consistent decline. The fund is trading at 10.31, both with a standard deviation of 0.05. The predicted Highs move between 9 and 10, while Lows oscillate around 9. The projected downward vector grows from ~1% to ~11% by Nov. 22.
Sectors to benefit from the Trump win
We can look to some obvious sectors of the market for gains today: healthcare, defense and energy. Trump’s proposed reversal of Obamacare legislation, or some deconstruction of it, will release private insurers from margin-squeezing regulation. As an example of this, we saw the Nasdaq Biotechnology ETF (IBB) surging 7.5%.
His strongman style and calls for a ‘rebuilding’ of the US military is a preview for more defense spending. One curious aspect of his victory speech alluded to increased infrastructure spending, which may benefit the energy sector.
Some signs are already showing for the renewable energy sector, particularly solar. It is now dealing with high uncertainty due to Trump’s favoring of domestic oil production. Guggenheim Solar ETF (TAN) and First Solar, Inc. (FSLR) both saw 5% drops in premarket trading.
Markets are going to be dealing with a radically non-traditional leadership style from Donald Trump, and his policy offerings so far have been muddled by colorful rhetoric. Within the coming weeks and months, we will simply have to wait for this new administration to roll out concrete steps toward their ever-famous campaign slogan: “Make America Great Again”.
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